Actively managing how forests grow can take the sting out of 80% of the economic pain from carbon taxes.
March 24, 2026
Original Paper
Carbon Taxes vs. Carbon Sinks: Optimal Forest Regulation in General Equilibrium
SSRN · 6460107
The Takeaway
Most climate policy assumes that carbon taxes must hurt national consumption to be effective. This study shows that if a country focuses on forest management to soak up carbon, it can meet strict climate targets with much lower taxes, effectively decoupling environmental goals from economic hardship.
From the abstract
I study optimal climate policy when countries can mitigate the negative consumption effects of fixed climate targets by increasing carbon removals in forests, allowing lower gross emission reductions and lower carbon pricing. Therefore, to assess the effects of climate policies, I develop a general equilibrium framework with a realistic age-structured forest sector and carbon cycle module. I focus on comparing two policy approaches: a first-best strategy that combines carbon taxes with active re